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Transcript
Pricing Techniques Marketing Learning intentions To be successful in today’s lesson you should be able to do the following: Understand the importance to companies of pricing techniques and the various factors that affect their choice of technique. Name and describe 7 pricing techniques. Pricing Techniques When the type of product or service is decided, it’s price must also be considered. Important factors include the following: Price of competitors’ products; Quality of product; Cost of materials and labour used; Type of market. e.g. Luxury products such as perfume will charge high prices, which are not an indication of the cost of production. Cost-Plus Pricing This is where the price is determined by the cost of making the product with a small percentage added on for profit. e.g. if the cost of making a cake is £3, but the cake is sold at £5, then the profit is £2. Competition-Based Pricing Businesses may price their products according to what competitors are offering, usually trying to beat competitors prices. Supermarkets are fiercely competitive in their pricing policy, often resorting to ‘loss leading’ on some products to attract customers. Penetration Pricing (Introductory Price) Where a business is bringing out a new product and is unsure of whether customers will buy it, a lower price is charged for the product to gain interest. Once a market has been established for the product, the price will increase. e.g. a new magazine will have an ‘Introductory Price’ of say 50p, then the full price may be £1.50. Skimming Pricing When a new product is going to be launched and is ‘the latest thing’, business can charge high prices in the short term to ‘skim’ as much profit as possible before competitors bring out similar products. e.g. this is the case with computing and electronic products, where consumers are likely to pay high prices to be ‘ahead of the rest’. Premium Pricing Some products would not sell if they had a low price. Some people buy products because of its high (premium) price to show that they have money, status etc. This is called ‘perverse demand’. e.g. If a Rolls Royce cost the same as a Ford Mondeo, people who buy Rolls Royce cars would not be attracted to it. Destroyer Pricing This is a tactic used by very large businesses to discourage new competition. Since these businesses make huge profits, they are able to dramatically reduce their price to get ‘rid’ of the competition. Although very unfair it is often practiced by big business. e.g. when bus services were privatised, many small bus companies started operating in the major cities around the UK, in order to get rid of them, the major bus companies dramatically reduced their prices – to the point where some companies were even offering free services for a short time. Promotional Pricing This a tactic used by companies whose sales may be falling and in order to increase sales will drop their price for a limited period to attract customers. Learning intentions To be successful in today’s lesson you should be able to do the following; Understand the importance to companies of pricing techniques and the various factors that affect their choice of technique. Name and describe 7 pricing techniques.